Family office insights this week:

• Why Family Office operating companies are so influential

• The Mr Family Office tweet with 25.7 million views

• The quest for legitimacy: unpacking next-gen issues

• A 10-track playlist of family office podcasts

• Three great family office job opportunities

How Operating Companies Shape Family Offices

If you want to work with or for a family office, you should know if they have an operating company and understand how it influences their strategy and operations.

For the uninitiated, an operating company is a family business that generates revenue and profits and usually distributes dividends into the family office.

For example, Walmart Inc. is an operating company - essentially a family-owned business - whereas Walton Enterprises is the family office for the Walton family focusing on wealth preservation and philanthropy. Dividends regularly flow from Walmart Inc. into Walton Enterprises.

The presence of an operating company can impact the character and direction of the family office's investment strategy, risk tolerance, and culture.

Let’s look at how.

💵 Cash:

Successful operating companies tend to be mature and established (hence the need for a family office). 

This means they are often regularly throwing off cash.

This has two important implications:

1) That cash needs to be allocated, so the family office has the flexibility to explore different investments. It also means the family office will stay busy as capital needs to be regularly allocated.

2) There might not be the same laser focus on costs if new capital is coming into the family office regularly.

Tight cost control can be a feature of family offices without an operating company. This can lead to underinvestment in people and systems.

Some family offices without an operating company may experience cash constraints, leading them to focus more heavily on preserving wealth rather than aggressively pursuing growth. This difference can result in a more conservative and cost-conscious environment, with potential implications for the staffing and resources available.

🧭 Strategy:

Some family offices are set up specifically to diversify the family's interests away from the operating company. Others seek to invest in aligned sectors in order to leverage their knowledge, expertise and networks.

Understand which is at play to understand the direction of the family office.

For example, a family office seeking to diversify away from the operating company may prioritize investments in unrelated industries such as real estate. Whereas a family office that wishes to stay aligned with its operating business might seek to acquire suppliers or expand into adjacent markets.

Pitching a business that doesn’t fit the family office strategy is a waste of time - make sure your proposal aligns with their mandate.

🏢 Structure:

The structure of the family office may be impacted by the presence of an active operating company.

There may be overlap between employees in the operating company and the family office.

The worst of all worlds is an embedded family office within the operating business where both companies are open to conflicts of interest, lack of clear governance, and blurred accountability.

In a more positive scenario, the operating company and family office can share resources effectively, leading to cost savings and better coordination between the two entities. However, this requires clear governance structures and well-defined roles for employees who may straddle both organizations. It is essential to set up boundaries to avoid the risks of operational confusion and conflicting priorities.

👥 Talent:

Trust plays a major role in family offices hiring. If there's an established operating company, there is a strong chance that the family office will bring key personnel from the operating business into the family office.

This can be advantageous, as employees from the operating business are already familiar with the family’s values, objectives, and operating style. However, it may also limit opportunities for external talent to bring new perspectives and skills into the family office, potentially narrowing its growth potential and strategic vision. It can also result in family office executives lacking the requisite skills for the role they have been given. Personal relationships often trump suitability for the role.

The presence of an operating company can influence the involvement of family members, as they may need to navigate between roles in the business and the family office. This dynamic can create complexities in decision-making and succession planning, especially if family members frequently reassess their interests and commitments.

⚠️ Risks:

An operating company introduces business-specific risks to the family office.

When the family office and operating company are seen as closely connected, a scandal or failure in one can tarnish the reputation of the other. For example, poor management decisions or legal challenges faced by the operating company could create reputational fallout that harms the family office.

🔄 Complications:

One complication of having an operating business is that there can be crossover of employees and policies. This can cause problems.

For example, family offices may rely on the operating business providing health insurance to family office employees. This is becoming more problematic.

It is well understood that embedded family offices pose risks for family offices and when an operating company is still active, similar risks may emerge as resources are shared.

When resources are shared, issues such as overlapping employee benefits, misaligned compensation structures, and the allocation of shared costs can become contentious. In some cases, this can create legal exposure, particularly if minority shareholders in the operating company feel that resources are being unfairly diverted to benefit the family office.

In such cases, clear documentation, governance frameworks, and legal agreements are crucial to minimize the risk of conflict. The family office should maintain its own separate governance structures and reporting mechanisms, even if it relies on shared services or personnel. This separation ensures that any concerns over the use of resources can be addressed with transparency and accountability.

🔍 Know your Family Office 

If you want to work for or with a family, you need to know as much about them as possible. It is key to know if there’s an operating company and what the relationship between the family office and the operating business is.

The presence of an operating business is usually a net positive for the family office, but it can also add complications. So go in with your eyes open!

This newsletter is sponsored by eHoldings

eHoldings is a privately held Canadian corporation that exclusively manages its founder Mike Cautillo’s proprietary capital and assets. It was created to satisfy its own niche, to grow and preserve wealth over the distant future via its unique position trading investment strategy that leverages actionable price action behaviors and fundamental market trends.

eHoldings has over the years made its insights available to accredited investors, which included facilitating exposure to Bitcoin. The company is now particularly focused on bringing its strategy to family offices through bespoke collaboration. See e-holdings.com for more.

𝕏 highlights

+25.7 million views on this tweet at last count. 🤯

It’s usually the simple throwaway tweets that go viral.

Bit it’s worth reading some of the replies… there are some doozies in there!

Some data from Deloitte on family office hiring trends.

Citi Bank research on family office outlook on different asset classes.

 💼 where to work

Three notable family office job opportunities currently open…

Vice President, Family Office Advisory - Iconiq (California / Multi-Family Office)

Head of Family Office - Private Family Office (California / Multi-Family Office)

Chief Financial Officer - Private Family Office (New York / Single Family Office)

📚 what to read

The Quest for Legitimacy by Jamie Weiner explores the journey of Next Generation family business leaders as they navigate the challenges of earning respect and authority within their families and enterprises.

It explored the personal and professional pressures the Next Gen faces, balancing tradition with innovation. The book offers insights into how successors can establish their own identity while upholding family values.

📻 what to listen to

The Pie Economics Podcast is one for hard-core economists. Host Tess Vigeland speaks with University of Chicago experts to explore how economic decisions shape our world. Each episode looks at current economic trends, policies, and the forces driving global markets.

📺 what to watch

A webinar from Deloitte: Transforming the family office operating model through technology.

Give and receive: share the newsletter with one friend for instant access to a 10-track Spotify playlist of family office content:

And finally…

A lot of you have been in touch lately. Always appreciate the feedback and comments. There’s a lot of interest in the upcoming jobs and deals newsletters - they’re in the pipeline!

Family Office Buzz will be back on Monday (here’s the last edition if you missed it) with more of the best content on family offices and beyond.

Until next week, see you on 𝕏 or LinkedIn

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